"Simplify, simplify." For businesses deluged with financial data, Thoreau's famous injunction has perhaps never seemed more pertinent. Innovative users of business performance management (BPM) software made great strides during the past year, especially in adapting the technology to their specific compliance needs and business environments and putting BPM tools into the hands of users throughout the organization.
The winners of the Business Finance 2007 Vision Awards -- BNSF Railway Co., Kansas City Southern, and American Red Cross, Greater Cleveland Chapter -- amply illustrate those themes. But the most striking success shared by this year's standouts was their use of BPM to carve a path through sometimes overwhelming amounts of detail and complexity to a holistic view of corporate performance.
Here's the cream of the BPM crop for 2007:
BNSF's business performance management system is largely a homegrown affair -- and is all the more powerful for it. OnTrack, a forecasting and budgeting tool developed in-house, sits on top of a Teradata data warehouse. The configuration also includes a Hyperion Essbase datamart that stores much of the data created in OnTrack. "Railroads are by nature much different from a lot of other companies," says Thomas Packer, assistant vice president, revenue management. "Our cost drivers and budgets are so different from, say, a plant or even a trucking company that we ourselves pretty much built all of the rules for how the system was going to operate."
The company's rapid expansion was the trigger for the overhaul of its financial systems, which it kicked off in 2001. "We had well over 2,000 different spreadsheets that anywhere from 30 to 70 users at any one time were entering data into," Packer recalls. "Then we had a spider web of macros that would take all of this information and pull it out to build our income statement, balance sheet, budgets, cash flow, and so on."
From the start, BNSF decided to look beyond the finance department as it revamped the system. The company set up a cross-functional team of business users and finance people who were responsible for budgeting and forecasting. "We sat down and said, 'What are the key drivers that we can use in formulas to comfortably attach different expenses to?,'" Packer reports.
One crucial cost driver was the number of crew starts. "Every time a new crew has to come on to move a train, for example, there is a cost associated with that," Packer explains. "In this business, you want to move equipment on the track as fast as you can with the least number of crews, because crews are the biggest variable expense that you can control. So we built those kinds of drivers in." Train miles was another key metric; many expenses -- fuel, for example -- cluster around that.
BNSF also tossed into the mix some more traditional, payroll-type measures, such as head count and number of workdays in a month. The goal was to produce numbers that would be meaningful and manageable for operations managers. "So if I'm an operating guy out in the field, I can easily know how many crew starts I have each month, and I can much better manage that than I can if I'm told, 'You get $3 million this month to operate all the crews across this system,'" says Packer.
Clumping costs around a handful of drivers greatly accelerated the budgeting process, because "once you get that data, you can drive a number of your key budget items automatically, instead of having to develop each one of those line items in your budget individually." Some users reported that a task that used to take a week or two could now be completed in an hour in OnTrack.
Other benefits? Packer rattles off a list: more consistency across groups, improved security, and much faster reporting of actuals against the business plan. "In the old days, business users would get a report maybe monthly, after the fact, on how they did on their budget," he says. "Now we push actuals to them in the system every 24 hours so that they can see at any point in time how their budget is looking."
This year, for the first time in the 11-year history of the Vision Awards, the judges picked two companies from the same industry. Kansas City Southern (KCS) is our second winner from the rail transportation sector. The aims and design of its BPM initiative differ markedly from BNSF's, although the results are just as impressive.
When Michael Borrows joined KCS as senior vice president and chief accounting officer in June 2005, executive teams were hard at work in integrating a Mexican railroad, a longtime partner that had been fully acquired two months earlier in a deal that instantly doubled the size of the organization. As with any integration, there were difficulties: new systems, new people, leadership changes, and relocations of functions.
But the financial reporting environment at KCS faced challenges that went beyond those. "We had a Sarbanes-Oxley deficiency at some level in every single accounting process in accounting," recalls Borrows. "Sarbanes-Oxley was under the auspices of internal audit; the accounting department didn't have a feel that it had accountability for Sarbanes-Oxley in the way that it should, within its own domain. You need to have individual accountability and responsibility; people need to understand what their roles and responsibilities are in the process, and this wasn't lined up for them." The company hadn't filed a 10K on time in four years, he adds.
Turnover was high. "If I pulled out two gentlemen who, between the two of them, had a combined service with the railroad of 70 years, the remaining accounting organization had a combined average service of less than two years," says Borrows.
KCS embarked on a total overhaul of its finance organization's systems, processes, and culture -- a transformation in which BPM played a central role. "There were really two keys to the kingdom in terms of getting this sorted out," says Borrows. "The first was bringing in more talent. The second was being able to leverage technology to make those people successful and significantly improve our underpinning business processes."
In January 2006, the company rolled out SAP, but it was "a very vanilla implementation," says Borrows. "The system wasn't leveraged; the control environment wasn't leveraged." Plus, the company lacked an organized data store. "There was nothing that was quick and gave you the information you needed. I'm not going to say that we weren't data-rich in this company, but we were information-poor because we couldn't get to the data. It was like Fort Knox!"
KCS started looking around for a system to remedy those deficiencies. "We started thinking about what we could implement that was going to be effective and that would empower people so that they'd be able to kick it into high gear right away," says Borrows. Applix TM1, a BPM application that leverages Microsoft Excel and Web-based reporting, fit the bill. "If you know Excel, you're 90 percent there."
The core objectives of the project were straightforward: Assure the accuracy of all financial reporting and rebuild finance's credibility, which had fallen within the company, a fact that was taking a toll on morale and contributing to turnover. The new system quickly delivered. "We don't get into meetings anymore in which we spend the first half-hour talking about whether the numbers are right. We get deeper, fuller business discussions."
Back in the days before the BPM implementation, quarterly closings were sometimes weeks late. Not anymore. This year, "the third quarter was closed on the sixth business day," says Borrows. "We filed the Q early for the second quarter in a row, and we're releasing our earnings with the rest of the railroads now." One unexpected bonus: "Our external accounting firm recognized such a shift in where things were going that they cut their audit fee this year by a million and a half dollars. They're not doing a lesser-quality audit; they're saving time. They have more confidence, and they've appreciated the transparency we've had, not just with them but with the audit committee."
Robert Dills, director of finance with the Greater Cleveland Chapter of the American Red Cross, joined the organization in November 2001 -- just as it was mounting an all-out mobilization of its resources in the wake of the terrorist attacks of September 11. And as if that weren't enough of a challenge, the organization had just launched a major BPM initiative. "We were really in the midst of making it all fit to close the books for November in the new system," he says.
Richard Hankins, director of administrative services and IT, was spearheading the project at the time, with the aim of replacing a legacy financial system and weaning the organization away from an overreliance on spreadsheets. "We knew that our finance system was crippled and dying," he says. The budgeting process involved assembling spreadsheets from individual departments and then compiling the data into a master spreadsheet -- a procedure that left plenty of room for error. "My first goal was to bring in something that would provide accuracy on a daily basis and allow us to accurately report what we know to the executive team, finance committee, board of directors, and community at large," notes Hankins.
The new system would deliver immediate improvements in efficiency. "I'm responsible for a number of departments within the organization, and I used to spend 2 to 3 weeks to get my budgets together with spreadsheets," says Hankins. "But once we went to this new budgeting package, I could do my initial budget in about five hours total."
Dills has heard similar stories from around the organization. "In the not-for-profit world, we continually have to do more with less," he points out. "When we have the type of inefficiencies that occurred with our Excel-based process, it significantly extends the business day for each department during the entire budget cycle." In the 6- to 8-week Excel-based budget process of his first year with American Red Cross/Cleveland, this translated to long hours outside the normal working week. But with the new system, Dills says, "my personal time requirements for working on the budget dropped by over 150 hours -- and that was evenings and weekends." He attributes the gain to the fact that "we now have a technological solution that allows each department to put in their budget at the detail level, and when they save the data, it immediately shows what the result is on the entire organization."
Smaller organizations have advantages in doing BPM right that the big guys sometimes lack: close teamwork between IT and finance, for example. Says Hankins: "It's really been a cooperative effort between Bob and I in working closely together that's enabled us to get to where we are now. We're on the same page, which has been critical for our success."
Support from the highest levels of the organization is another advantage that smaller operations often enjoy. Dills and Hankins underscore the role of CEO Mary-Alice Frank in ensuring the project's success. "She knows that if we come to her with a recommendation, it's going to be something that makes sense and is in the best interests of the organization and will help us to move forward. And she fully embraces that," says Dills. "When we implemented our budgeting and forecasting tool, the first person who adjusted a forecast was her."
This became a message to the entire organization, he says: "If the CEO can be committed to using these technologies, then so can everybody else!"